A down month for retail sales.
Retail sales dropped by a sharp -0.9 percent for May, even worse than the market expectation of -0.6 percent. But “core” retail sales (removing autos, gasoline, and building materials) rose by a solid 0.4 percent. Certainly, a bad look on the surface, but maybe not so bad when looking deeper.
Some of the drop in May came as a result of normalization of purchases after a jump in the pre-tariff period (autos in particular), although exactly how much is not clear. Additionally, the decline in sales at gasoline stations is mostly good news for consumers as the data are presented in nominal terms and gasoline prices were lower in May. Core retail sales (officially known as the retail control group) give a better view of underling consumer spending in this segment. Not all consumer spending is captured in the retail sales report, with the broader personal consumption expenditures (PCE) measure including an expanded universe of goods plus services). But a large portion of spending on goods is accounted for in the retail sales report – suggesting that PCE growth in May is likely to also be weaker (although propped up by services).
The Federal Open Market Committee (FOMC) is meeting today and tomorrow to determine the near-term course of monetary policy. Today’s retail sales report is unlikely to have any impact on tomorrow’s FOMC decisions but further declines in overall retail sales in coming months (especially if the core measure increases only modestly) would increase the odds of Fed easing later this year – especially if inflation remains quiescent.
David W. Berson, Ph.D., CBE
Chief Economist
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